Australia: How many employees does it take to make an enterprise agreement?

In brief - Section 172(6) of the Fair Work Act 2009 (Cth) (the Act) provides that an enterprise agreement cannot be made with a single employee. Does this imply that an enterprise agreement made with at least two employees is permitted?

The Federal Court's recent decision in One Key Workforce Pty Ltd v CFMEU [2018] FCAFC 77 (One Key) suggests not.

The prohibition on making an enterprise agreement with a single employee was introduced into the Act in 2012 (Fair Work Amendment Act 2012 (Cth), Sch 4, Item 1), in part to address union concerns that employers were seeking to make agreements with individual employees to avoid union involvement in bargaining. The amendment followed a decision of the Full Bench of the Fair Work Commission (FWC) in AMWU v Inghams Enterprises Pty Limited [2011] FWAFB 6106, which held it would be inconsistent with the objects of the Act to impose a limitation on the number of employees with whom an enterprise agreement could be made.

Subsequently, in CFMEU v John Holland Pty Ltd [2015] FCAFC 16, a Full Court of the Federal Court confirmed that the Act permitted the making of an enterprise agreement with three employees despite there being job classifications in the agreement additional to those held by the three employees because, amongst other reasons, "there was no feature of the agreement ... which suggested it was intended to, or might possibly, frustrate the operation of the [Act] in future or prevent good faith bargaining" (at [74]).

Then, in 2017, the High Court of Australia upheld the approval of an enterprise agreement made with a group of employees who had been employed but had not yet commenced work in a new operational division of the employer.

In ALDI Foods Pty Limited v SDA [2017] HCA 53 (ALDI), the High Court observed (at [82]) "a non-greenfields enterprise agreement can be made with two or more employees, so long as they are the only employees employed at the time of the vote who are to be covered by the agreement. It does not matter that the agreement may, in due course, come to apply to many more employees."

The relevant provisions of the Fair Work Act

Before requesting employees to vote in relation to an enterprise agreement, section 180(5) requires that the employer must take "all reasonable steps" to ensure "the terms of the agreement, and the effect of those terms, are explained to the relevant employees" and that the explanation is provided in an appropriate manner taking into consideration the particular circumstances of the employees.

The Act also requires that the FWC approve an enterprise agreement if certain requirements are met. One such requirement is that the agreement must have been "genuinely agreed to by the employees covered by the agreement": section 186(2)(a). In ALDI, the High Court confirmed that this refers only to current employees falling within the classifications of employees set out in the agreement.

The facts in One Key

The decision in One Key concerned the RECS (Qld) Pty Ltd Enterprise Agreement 2015 (One Key Workforce (OKW), was known as RECS (Qld) Pty Ltd at the time the agreement was made). The Agreement was made with three employees, two of whom worked in the coal mining industry and would have been covered by the Black Coal Mining Industry Award 2010 had they not been covered by the Agreement. The third employee worked in the construction industry and would have been covered by the Building and Construction General Onsite Award 2010 if not covered by the Agreement.

The Agreement however purported to cover employees who would otherwise have been covered by one of 11 modern awards in work including (but not limited to) road transport and distribution, clerical and administrative work, oil refining and manufacturing, hydrocarbons and offshore oil and gas.

No union was involved in bargaining for the Agreement (presumably because none of the three employees were union members) and, in fact, there was no bargaining. There was no negotiation over the terms and conditions in the Agreement, with the employees in question simply being emailed the written Agreement and being asked to cast a vote for or against. The evidence before the FWC was that a OKW representative provided the three employees with a copy of the proposed Agreement via email on 7 August 2015. On 17 August 2015, the same representative provided the employees with details of the voting arrangements, also via email, and then telephoned each of the employees to confirm their receipt of her email.

Voting commenced on 25 August 2015. That same day, the representative sent an email to the three employees, which she described as "comprehensive" but which the Court described as "at best misleading". The representative subsequently called the employees to confirm their receipt of her email and to enquire as to whether they had any questions. In evidence before the Court, the representative claimed she could not recall the details of those conversations, or what was explained to employees, other than that the employees did not have any questions.

The employee vote was successful and on 4 September 2015, OKW filed an application for approval with the FWC. In the Form F17 accompanying the application, OKW claimed the terms of the Agreement and the effect of those terms were explained to the employees in the phone calls of 17 and 25 August. While the FWC initially expressed concern as to whether the employees had genuinely agreed to the Agreement, this was not the subject of further evidence or enquiry before the FWC and ultimately the Agreement was approved by the FWC on 30 October 2015 and commenced operation on 6 November 2015. Some considerable time later, in November 2016, the Union made an application to the Federal Court seeking a declaration that the approval of the Agreement was "void and of no effect", alleging the FWC had acted beyond the scope of its powers in deciding to approve the Agreement.

At first instance, the primary judge made the declaration sought by the Union (ie that the approval was void and of no effect), thereby quashing the Agreement. OKW subsequently appealed that decision before a Full Court of the Federal Court.

Before the Full Court, the OKW representative claimed that during the 17 August telephone call, she "went through the terms of the Agreement, reading out certain clauses but did not 'go through' the awards or explain how the terms of the Agreement would interact with the awards". When questioned, the representative told the Court that she had not compared the terms and conditions in any of the awards with the terms and conditions in the Agreement. Indeed, there was nothing in the Agreement, or the facts of the case generally, to suggest that the three voting employees had any insight into, much less interest in, the working conditions of future employees covered by the other modern awards or the effect of the Agreement on those employees.

As a consequence, the Full Court dismissed OKW's appeal, finding:

The content of the explanation and the terms in which it was conveyed were relevant considerations to which the Commission was bound to have regard. The absence of that information meant that the Commission was not in a position to form the requisite state of satisfaction. Put differently, without knowing the content of the explanation, it was not open to the Commission to be satisfied that all reasonable steps had been taken to ensure that the terms and their effect had been explained to the employees who voted on the Agreement or that they had genuinely agreed to the Agreement.

As a result of the quashing of the approval of the Agreement, each of the approximately 1,100 OKW employees reverted back to being award-covered employees. According to the Union, the decision also meant that many of the employees could be entitled to $3 million in additional annual leave and personal leave entitlements (because the underlying Black Coal Mining Industry Award 2010, prohibits casual employment). This issue is yet to be resolved by the Courts and OKW is now in administration.

Does the One Key decision signal the end of enterprise agreements made with two or three employees?

In short, no.

The decision does however have important consequences for employers embarking on the enterprise agreement making process and it is imperative that the following be taken into consideration:

  • the group of employees who will be covered by the agreement;
  • whether all employees who will be covered by the agreement are involved in the agreement making process, even if they are engaged in other parts of your business not covered by the agreement at the time;
  • the explanation of the terms of the agreement and the effect of those terms given to employees. This will be particularly important where the agreement initially only covers a small number of employees but this is expected to grow over time. As the Full Court observed, "where employees working in few occupational classifications consent to an agreement which covers numerous other occupations or other occupations in many industries beyond their own, an explanation of the terms of the agreement and their effect may fall short of providing an adequate basis for the formation of genuine consent"; and
  • the evidence made available to the FWC as part of the approval process about the explanation provided to employees. A simple assertion in the Form F17 statutory declaration that an explanation was provided will be insufficient.

Megan Bowe
Workplace relations
Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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